Moscow has worked out a program of unfinished oil wells which could start operating once global demand recovers from the coronavirus pandemic, said Russian Energy Minister Alexander Novak.
Oil prices nosedived to their lowest level since June on Tuesday amid growing demand concerns as the coronavirus continues to spread. International benchmark Brent plunged more than five percent to $39.72 a barrel. US West Texas Intermediate crude slipped eight percent to $36.60, its lowest mark since June 16.
“Once [oil] demand starts returning to the pre-crisis levels, it will be extremely important for Russia and for other oil producing countries to quickly regain market share, or even to raise it,” the minister said.
The new wells will be drilled in 2020-21 but will stay idle until April 2022, when the current OPEC+ agreement expires. The wells will subsequently be launched over the next few years, in line with the expected growth in energy demand.
According to Novak, the government considered offering three-year tax breaks for companies engaged in the program from early 2022, estimating the number of the unfinished wells at 2,700. Banks will provide part of the funds under guarantees by the state bank VEB, and while the tax breaks are estimated at 32 billion rubles ($419 million), the budget is set to regain 1.15 trillion rubles ($15 billion) once the wells are operating.
Novak said that the total spending by oil companies themselves is seen at 300-400 billion rubles ($4-5 billion). He suggested that the companies should engage in “green” energy production until oil demand recovers. A similar idea could be considered for the gas sector, also hard-hit by the weak demand amid the coronavirus pandemic, said the minister.
OPEC+ countries are currently cutting oil output by 7.7 million barrels per day until December to support falling prices due to the pandemic.
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